Analyst Call Tracker: Why three auto stocks are winning over analysts amid price volatility?

Automobile companies Bajaj Auto, Tata Motors, and Mahindra & Mahindra continue to generate optimism among analysts despite volatility in the market last month.

According to Moneycontrol's Analysts' Call Tracker, these companies were among 10 stocks with the maximum contrarian calls over the month. A contrarian call is when an analyst recommends buying a stock although its price is falling, or the other way round.

In January, Bajaj Auto gained about 6 percent, while Tata Motors and M&M added 16.5 percent and 10.5 percent, respectively.

The sharp gains in the first month of 2023 gave investors more room to book profits in February, when weak market sentiment resurfaced due to renewed concerns that the US Federal Reserve may keep hiking interest rates to rein in sticky inflation.

EV focus

For Bajaj Auto, another major drag in February came after the company cut production at its export-focused plants by up to 25 percent. As a result, the stock shed 6.23 percent in February.

However, analysts remain hopeful about the company, as reflected by the total of 34 ‘buy’ calls by brokerages.

“Even though the key concern for Bajaj Auto is its weak exports that are likely to recover only in the second half of FY24, an easing of supply disruptions and the company's increased focus on the electric vehicle segment is expected to support the automaker,” a research analyst covering the automobile sector said.

Also Read: Contrarian calls | Profit-booking drags automobile firms but analysts bullish on sector

Sales of two-wheelers in the 125 cc and above category are also likely to grow on the back of premiumisation, which will likely offset the weak rural demand for entry-level 100 cc two-wheelers, analysts noted.

For Tata Motors, sales volumes at luxury arm Jaguar and Land Rover are expected to jump with the reopening of China, one of its key markets, and easing semiconductor supplies, according to Varun Baxi, Analyst at Antique Stock Broking.

With the recovery in volumes for JLR, Baxi is of the view that debt for Tata Motors will also go down, strengthening its financials and turning the company into one of the best bets within the automobile sector.

Additionally, analysts are of the view that a ramp-up in electric vehicle sales will help expand margins for Tata Motors. The optimism was spread across the Street as ‘buy’ calls for the stock increased to 27 from 25 over February.

Sentiment was positive for M&M as the company is expected to reap the benefits of a strong recovery in sales of sports utility vehicles.

The analyst noted that consistent month-on-month rise in SUV sales is testament to the robust recovery in the segment and M&M’s strong position.

Additionally, the company's plan to raise production capacity of its latest SUVs by 70 percent from current levels by the third quarter of FY24 on the back of resilient demand and a growing order book is a major growth driver, the analyst said.

Along with SUVs, the recovery in tractor sales is likely to continue for another year despite a high base, which is seen driving growth for M&M, Baxi said.